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Forumer storico
China Is Running Out Of Money

Image credit: AFP/Getty Images via @daylife

Last week’s release of disappointing economic and trade data for July has, predictably, renewed calls for additional stimulus. In May, Beijing ramped up its support for the economy, and observers had expected activity to pick up by last month.
Why has the economy so far failed to respond? There are various reasons, but perhaps the most important is that the country is running out of money for stimulus.
At first glance, that proposition seems preposterous. After all, the People’s Bank of China, the central bank, held $3.24 trillion of foreign currency reserves at the end of the first half of this year. Yet foreign currency, no matter how plentiful, has limited usefulness in a local currency crisis. In any event, the PBOC’s foreign currency holdings are almost evenly matched with renminbi-denominated liabilities that were incurred to acquire all those dollars, pounds, euros, and yen. As a result, the central bank cannot use the reserves without driving itself deep—actually, deeper—into insolvency.
The recent slight decline in the value of the renminbi versus the dollar has decreased the amount of the PBOC’s liabilities in relations to its assets and has therefore marginally strengthened its balance sheet, but the central bank still does not have the flexibility to use its reserves as it pleases. Therefore, a massive foreign currency injection into the economy, even if it would work, is not in the cards.
Nonetheless, the central bank could, as it did beginning in 2003, inject a limited amount of reserves into the country’s state banks to permit them to lend more money. The last stimulus program, announced at the end of 2008, created growth primarily because the state banks, at Beijing’s direction, embarked on an extraordinary lending spree. In 2009, for instance, new local currency lending reached a record 9.59 trillion yuan, just about double that of 2008. The loan-a-thon continued in 2010 and 2011 as the economy got hooked on easy credit.
The lending spree has ended, however. The state banks cannot fund all the hundreds of new projects—500 according to one count—that Beijing and local governments have announced in recent months. Why? Many of the loans central technocrats forced bankers to make since 2008 will never be repaid.
The China Banking Regulatory Commission claimed the banks’ nonperforming loan ratio at the end of the first quarter was 0.9%, but even the regulator expresses doubts about its own figure. And the rapid buildup of bad loans since the end of 2008 will have consequences.
Banks, despite what the CBRC says, are burdened by questionable loans and will have to scrounge for funding before they can make long-term commitments for stimulus projects. Tsinghua University’s Patrick Chovanec reports that this year banks have managed to make new loans but most of them have been short-term. Moreover, he notes these financial institutions will have problems soon as they will need their remaining liquidity to refinance wealth management and property trust products coming due. In short, they will scramble just to find the cash for existing commitments. Funds for new projects—the ones that represent growth—will be scarce. In July, not surprisingly, new renminbi lending fell, dropping below all estimates to 540.1 billion yuan from 919.8 billion in June.
In any event, economists believe infrastructure—stimulus—spending will only make up for declining demand from private businesses. As the Wall Street Journal’s Tom Orlik reports, such spending is not expected to stimulate growth.
Despite everything, some cities are getting funding for new projects, but that’s only because the CBRC has essentially ordered the banks to shovel funds to the uncreditworthy local government financing vehicles. Just months ago, Chovanec notes, these borrowers were on the “do-not-lend list.” Yet many localities, even after the lending taps were opened, are still cash-strapped.
So how bad is the situation? Anne Stevenson-Yang of J Capital Research reports that the tax bureau of one of China’s largest cities “has no money.” Its officials, incredibly, have been told to collect their own salaries from taxpayers directly. The breakdown of government in that city is also evident across the country, where localities are now desperate for revenue.

Taizhou, in prosperous Jiangsu province, has imposed an illegal 5% tax on rentals and has sent collectors door-to-door to demand the levy. Changning in Hunan has cancelled vacation and one day each weekend for tax collectors. Fifteen cities and counties in Hainan, the island province, have collected only 17% of the budgeted land sale revenue.
Hangzhou’s tax revenues are down 2.7% this year. This figure does not include revenue from land sales, down more than 50% in the first six months. Xiangtan in Hunan has missed salary payments to teachers and not made pension contributions. It is rumored that Wuxi could not pay salaries in May and that Ordos, the infamous ghost city, had to borrow from a state coal company to meet operating expenses.
And Shenyang, the capital of Liaoning province, has become predatory, increasing the collection of non-tax fees by 57% this year. Last week, thousands of stores and restaurants closed for three days as owners heard that “rapacious” officials planned to knock on doors to impose “fat fines” to finance China’s National Games, which will be held in the city next year. Shenyang officials quickly denied the plan, but owners, not wanting to take chances, remained shuttered nonetheless.
When shops close to avoid predatory officials, we know China’s coffers are almost empty. And to make matters worse, the country’s financial problems will be harder to solve now that the country’s balance of payments has turned negative. The net outflow in the second quarter of this year was the first since 1998. The country’s reserves also dropped in Q2. We should not be surprised: there was perhaps $110 billion of capital flight during that period, and the gusher outflow looks like it continued in June. Chinese citizens are losing confidence fast.
No developing country has ever escaped a major financial crisis. The People’s Republic of China is about to have its first one now. The country, from the great cities on the coast to tiny hamlets in the mountains, is short of cash.


Forumer storico
potreste cortesemente tenere pulito il thread da commenti non inerenti all'argomento.


Forumer storico
buon giorno storm,

[ame=]Anche la Cina rischia il crack - Aldo Giannuli - YouTube[/ame]


Forumer storico
China Has Become One Big "Stuffed Channel"

Zero Hedge covered the topic of automotive channel stuffing long before it became a conversation piece, particularly as it pertains to Government Motors, a story which has recently taken precedence after being uncovered at such stalwarts of industry as German BMW and Mercedes, implying the German economic miracle may, too, have been largely fabricated. Another core topic over the years has been the artificial and inventory-stockpiling driven (in other words hollow) "growth" of China's economy, whose masking has been increasingly more difficult courtesy of such telltale signs of a slowdown as declining electricity consumption and off the charts concrete use. It was only logical that the themes would eventually collide and so they have: the New York Times published "China Besieged by Glut of Unsold Goods" in which, as the title implies, it is revealed that China is now nothing more than one big "stuffed channel."
First, we find, what has been painfully obvious to anyone holding an even modestly skeptical view on the Chinese centrally planned economy.

The glut of everything from steel and household appliances to cars and apartments is hampering China’s efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.
Just like in the US, and Europe, the Chinese government is, gasp, lying about everything:

The severity of China’s inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government — all part of an effort to prop up confidence in the economy among business managers and investors.
Naturally the Politburo, which measures GDP once a product or service is created, is delighted to produce more, more, more of everything. The demand aspect of the core economy equation does not matter. The problem is that even the Chinese central planners have now run out of space under the rug.

But the main nongovernment survey of manufacturers in China showed on Thursday that inventories of finished goods rose much faster in August than in any month since the survey began in April 2004. The previous record for rising inventories, according to the HSBC/Markit survey, had been set in June. May and July also showed increases.
And now that China too has run out of collateral with which to fund endless supply, which in turn requires legitimate demand, it has big, big problems:

Business owners who manufacture or distribute products as varied as dehumidifiers, plastic tubing for ventilation systems, solar panels, bedsheets and steel beams for false ceilings said that sales had fallen over the last year and showed little sign of recovering.

Sales are down 50 percent from last year, and inventory is piled high,” said To Liangjian, the owner of a wholesale company distributing picture frames and cups, as he paused while playing online poker in his deserted storefront here in southeastern China.

Wu Weiqing, the manager of a faucet and sink wholesaler, said that his sales had dropped 30 percent in the last year and he has piled up extra merchandise. Yet the factory supplying him is still cranking out shiny kitchen fixtures at a fast pace.

“My supplier’s inventory is huge because he cannot cut production — he doesn’t want to miss out on sales when the demand comes back,” he said.
Demand is not coming back, because every channel has now been stuffed. But what story of channel stuffing would be complete without one's auto industry being exposed as a total sham. Sure enough:

Inventories of unsold cars are soaring at dealerships across the nation. Quality problems are emerging. And buyers are becoming disenchanted as car salesmen increasingly resort to hard-sell tactics to clear clogged dealership lots.

The Chinese industry’s problems show every sign of growing worse, not better. So many auto factories have opened in China in the last two years that the industry is operating at only about 65 percent of full capacity far below the 80 percent usually needed for profitability.

Yet so many new factories are being built that, according to the Chinese government’s National Development and Reform Commission, the country’s auto manufacturing capacity is on track to increase again in the next three years by an amount equal to all the auto factories in Japan, or nearly all the auto factories in the United States.
Even Detroit makes a cameo appearance:

The Chinese auto industry has grown tenfold in the last decade to become the world’s largest, looking like a formidable challenger to Detroit. But now, the Chinese industry is starting to look more like Detroit in its dark days in the 1980s.
It gets worse:

Automakers in China have reported that the number of cars they sold at wholesale to dealers rose by nearly 600,000 units, or 9 percent, in the first half of this year compared to the same period last year.

Yet dealerships’ inventories of new cars rose 900,000 units from the end of December to the end of June. While part of the increase is seasonal, auto analysts say that the data shows that retail sales are flat at best and most likely declining — a sharp reversal for an industry accustomed to double-digit annual growth.

“Inventory levels for us now are very, very high,” said Huang Yi, the chairman of Zhongsheng Group, China’s fifth-largest dealership chain. “If I hadn’t done special offers in the first half of this year, my inventory would be even higher.”

Manufacturers have largely refused to cut production, and are putting heavy pressure on dealers to accept delivery of cars under their franchise agreements even though many dealers are struggling to find places to park them or ways to finance their swelling inventories. This prompted the government-controlled China Automobile Dealers Association to issue a rare appeal to automakers earlier this month.

“We call on manufacturers to be highly concerned about dealer inventories, and to take timely and effective measures to actively digest inventory, especially taking into account the financial strain on distributors, as manufacturers have to provide the necessary financing support to help dealers ride out the storm,” the association said.

As dealer lots become cluttered, many salesmen have resorted to high-pressure sales tactics. That has resulted in growing customer dissatisfaction in the past year, according to surveys by J. D. Power. As a result, auto dealers are voicing the same complaints about inventory as businesspeople in a wide range of other industries.
China, like any self-respecting "capitalist" country has found the best way to deal with such a trivial nuisance: denial.

Officially, though, most of the inventory problems are a nonissue for the government.

The Public Security Bureau, for example, has halted the release of data about slumping car registrations. Data on the steel sector has been repeatedly revised this year after a new methodology showed a steeper downturn than the government had acknowledged. And while rows of empty apartment buildings line highways outside major cities all over China, the government has not released information about the number of empty apartments since 2008, according to a report last Friday.

Yet businesspeople in a wide range of other industries have little doubt that the Chinese economy is in trouble.

“Inventory used to flow in and out,” said Mr. Wu, the faucet and sink sales manager. “Now, it just sits there, and there’s more of it.
And now readers know why in addition to everything else, we have a special place in our hearts for the "inventory" component of US GDP, which in Q2 accounted for 0.3% of the 1.5% GDP.
As for China, we wish it luck in further easing to provide more supply-driven push for its channel-stuffed economy: with $14 trillion in deposits, or $5+ trillion more than the US, which can rush out at a moment's notice, and buy everything that is not nailed down (and certainly gold) at the faintest whiff of inflation, and record high soybean prices which we discussed previously will keep the PBOC on hold far longer than most experts predict, all those rumors of a China hard landing are increasingly becoming facts.

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